I am Director of Entitlement and Budget Policy for the Heartland Institute, Senior Advisor for Entitlement Reform and Budget Policy at the National Tax Limitation Foundation, General Counsel for the American Civil Rights Union, and Senior Fellow at the National Center for Policy Analysis. I served in the White House Office of Policy Development under President Reagan, and as Associate Deputy Attorney General of the United States under President George H.W. Bush. I am a graduate of Harvard College and Harvard Law School, and the author most recently of America's Ticking Bankruptcy Bomb (New York: Harper Collins, 2011).
I write about new, cutting edge ideas regarding public policy, particularly concerning economics.

Reaganomics Vs. Obamanomics: Facts And Figures

In February 2009 I wrote an article for The Wall Street Journal entitled “Reaganomics v Obamanomics,” which argued that the emerging outlines of President Obama’s economic policies were following in close detail exactly the opposite of President Reagan’s economic policies. As a result, I predicted that Obamanomics would have the opposite results of Reaganomics. That prediction seems to be on track.

When President Reagan entered office in 1981, he faced actually much worse economic problems than President Obama faced in 2009. Three worsening recessions starting in 1969 were about to culminate in the worst of all in 1981-1982, with unemployment soaring into double digits at a peak of 10.8%. At the same time America suffered roaring double-digit inflation, with the CPI registering at 11.3% in 1979 and 13.5% in 1980 (25% in two years). The Washington establishment at the time argued that this inflation was now endemic to the American economy, and could not be stopped, at least not without a calamitous economic collapse.

All of the above was accompanied by double -igit interest rates, with the prime rate peaking at 21.5% in 1980. The poverty rate started increasing in 1978, eventually climbing by an astounding 33%, from 11.4% to 15.2%. A fall in real median family income that began in 1978 snowballed to a decline of almost 10% by 1982. In addition, from 1968 to 1982, the Dow Jones industrial average lost 70% of its real value, reflecting an overall collapse of stocks.

President Reagan campaigned on an explicitly articulated, four-point economic program to reverse this slow motion collapse of the American economy:

1. Cut tax ratesto restore incentives for economic growth, which was implemented first with a reduction in the top income tax rate of 70% down to 50%, and then a 25% across-the-board reduction in income tax rates for everyone. The 1986 tax reform then reduced tax rates further, leaving just two rates, 28% and 15%.

2. Spending reductions, including a $31 billion cut in spending in 1981, close to 5% of the federal budget then, or the equivalent of about $175 billion in spending cuts for the year today. In constant dollars, nondefense discretionary spending declined by 14.4% from 1981 to 1982, and by 16.8% from 1981 to 1983. Moreover, in constant dollars, this nondefense discretionary spending never returned to its 1981 level for the rest of Reagan’s two terms! Even with the Reagan defense buildup, which won the Cold War without firing a shot, total federal spending declined from a high of 23.5% of GDP in 1983 to 21.3% in 1988 and 21.2% in 1989. That’s a real reduction in the size of government relative to the economy of 10%.

4. Deregulation, which saved consumers an estimated $100 billion per year in lower prices. Reagan’s first executive order, in fact, eliminated price controls on oil and natural gas. Production soared, and aided by a strong dollar the price of oil declined by more than 50%.

These economic policies amounted to the most successful economic experiment in world history. The Reagan recovery started in official records in November 1982, and lasted 92 months without a recession until July 1990, when the tax increases of the 1990 budget deal killed it. This set a new record for the longest peacetime expansion ever, the previous high in peacetime being 58 months.

During this seven-year recovery, the economy grew by almost one-third, the equivalent of adding the entire economy of West Germany, the third-largest in the world at the time, to the U.S. economy. In 1984 alone real economic growth boomed by 6.8%, the highest in 50 years. Nearly 20 million new jobs were created during the recovery, increasing U.S. civilian employment by almost 20%. Unemployment fell to 5.3% by 1989.

The shocking rise in inflation during the Nixon and Carter years was reversed. Astoundingly, inflation from 1980 was reduced by more than half by 1982, to 6.2%. It was cut in half again for 1983, to 3.2%, never to be heard from again until recently. The contractionary, tight-money policies needed to kill this inflation inexorably created the steep recession of 1981 to 1982, which is why Reagan did not suffer politically catastrophic blame for that recession.

Real per-capita disposable income increased by 18% from 1982 to 1989, meaning the American standard of living increased by almost 20% in just seven years. The poverty rate declined every year from 1984 to 1989, dropping by one-sixth from its peak. The stock market more than tripled in value from 1980 to 1990, a larger increase than in any previous decade.

In The End of Prosperity, supply side guru Art Laffer and Wall Street Journal chief financial writer Steve Moore point out that this Reagan recovery grew into a 25-year boom, with just slight interruptions by shallow, short recessions in 1990 and 2001. They wrote:

We call this period, 1982-2007, the twenty-five year boom–the greatest period of wealth creation in the history of the planet. In 1980, the net worth–assets minus liabilities–of all U.S. households and business … was $25 trillion in today’s dollars. By 2007, … net worth was just shy of $57 trillion. Adjusting for inflation, more wealth was created in America in the twenty-five year boom than in the previous two hundred years.

What is so striking about Obamanomics is how it so doggedly pursues the opposite of every one of these planks of Reaganomics. Instead of reducing tax rates, President Obama is committed to raising the top tax rates of virtually every major federal tax. As already enacted into current law, in 2013 the top two income tax rates will rise by nearly 20%, counting as well Obama’s proposed deduction phase-outs.

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Allthough the author of the article makes some very strong points. It has failed to recognize numerous things between reaganomics and Obamanomics.

First being the time period. In the 1980′s the cost of living was significantly cheaper than the cost of living now. Also how voters and Americans were brought up then Was different then they are being brought up now. These are different people than were living in America in the 1980′s.

Second being the fact that when the recession was happening in the 80′s it was a post war time recession, and today’s recession is currently still in a wartime recession.

Also the fact that Reagan was a republican helped him get what he wanted done. Whereas Obama is a Democrat, who is being opposed on numerous fronts by the Republicans.

Also during that time period there where Millions more jobs in America. But since then Al lot of those jobs have been outsourced to third-world countries for cheaper labor.

Therefore I will have to deny the comparison between the two presidents.

I think this is a spin-doctor moment: Even with the Reagan defense buildup, which won the Cold War without firing a shot, total federal spending declined from a high of 23.5% of GDP in 1983 to 21.3% in 1988 and 21.2% in 1989. That’s a real reduction in the size of government relative to the economy of 10%.

If the National Debt in 1980 was a quaint $900 billion and a less-than-quaint $3.5 trillion when President Reagan completed his efforts, why is that a reduction? From $1 trillion to $3.5 trillion is an increase! The National Debt is a future tax increase with interest tacked on.

Deregulation: It seems that there is Good Deregulation and Bad Deregulation. The Taxpayers had to Bail the S&L institutions to the tune of $160.1 Billion dollars (net loss of $124 billion). This was the first banking crisis in since the Great Depression. Funny how that happened. Huh? Of course, the most recent financial calamity also caused by financial sector deregulation is further proof that deregulation works all the time every time.

Over simplification: “the Reagan defense buildup, which won the Cold War without firing a shot…”

I am pretty sure the complete and utter incompetence of the Soviet economy would have collapsed under the wait of its’ own construction. Other ingredients that are not mentioned in this “perfect experiment” are: the Soviet invasion of Afghanistan and its drain on the USSR, Gorbachev’s understanding of the weakness of the Soviet economy, and his efforts at Glasnost and Perestroika.

To suggest that the Soviet Union collapsed strictly because the 1981 tax cuts and Trillions in defense spending is an overreach.

Mr. Korenak, Have you ever heard of or read anything about the Vietnam War? Do you understand the meaning of the word “peacetime”? Do you understand that government spending is not the same thing as the national debt? Are you fluent in English? Have you ever heard of or read anything about Margaret Thatcher? Just asking. Maybe you should look Thatcher up in Bartlett’s Quotations.

The salient difference is Reagan loved America and wanted the best for her. Obama is trying to reduce America to 3rd world status because of his hatred for our democracy, Christian roots and our constitution.

1. The inflation rate at the end of the Carter presidency was higher than now, precisely because in those days the Federal Reserve Board did not fear or fight inflation the way it does now. Paul Volker and Alan Greenspan brought that aggressive anti-inflation gospel to the Fed, with laudable results. Had the latter not totally dropped the ball on the topic of Wall Street Investment Bank oversight he might be remembered fondly today. Instead he now looks like a happy-talk purveying bumbler, reminiscent of the Roman emperor Nero. 2.Fuel price controls were instituted because gasoline prices were crazy and did not reflect supply/demand priniciples at the time of the Arab oil embargo. In ’77′-78, when the price of gas first hit $1/gal near the George Washington Bridge and you could only purchase $2 worth, there were reportedly numerous fully loaded oil tankers moored offshore anticipating further price rises. Twenty miles away on the NY Thruway, the price was 47.9/gal. Price controls as a strategy were more fashionable back then. Don’t blame Pres. Carter. Richard Nixon used them too. 3. Reagan’s economic policies were not his own – they were provided by a team of advisors, chief among them the budget director David Stockman who has since gotten religion big time and denounced them as bad policy. Bad policy for whom?, you may ask. Well, for the average American citizen, is the answer. The very concept of “trickle-down” economics was perhaps the most self-serving and irresponsible bill of goods ever foisted on the American people by a president. As a deception, it ranks with the prevailing 1920′s belief that buying stocks on margin was a great way to get rich. Yet today, we have Romney preaching the same sermon, evidently oblivious to the simple truth that when you cut taxes on wealthy people to promote growth and wage a simultaneous war on organized labor, then you eventually weaken and shrink the middle class. By the way, I say this as a wealthy person (a one-percenter) who has never belonged to a union.

For you to suggest that the economic troubles in 1979 following three recessions since 1969 were a problem even vaguely comparable in severity to the potential economic wreckage we faced in 2008 suggests that you might profit by going over to NYU and auditing ECON 101. The biggest decision Reagan had to make upon taking office was whether to make a symbolic point by dismantling the solar panels on the roof. The first of many bad decisions. On his first day in office, Obama was handed a pending world-wide financial collapse comparable in scale to the crash of 1929. The only reason we did not have bread lines around the world is because stimulatory policies, necessarily increasing the deficit, were pursued. There was essentially not much choice, as you well know.

By the way, political parties were not to blame here. Bill Clinton, after all, signed into law the Gramm-Leach-Bliley Act of 1999, which set us up for the mess that ensued and the mess we’re still in now. It would be fitting for Phil Gramm, when he dies, to be buried in a plot next to Herbert Hoover. Remember that it took more that ten years and the beginning of a World War to fully free our nation from the hangover of the great depression. To argue that Obama should have solved America’s economic woes in 4 years, when the’ve been building for more than twenty, is simply not fair.

If Obama did fall short, it was in not taking on the investment banking people with a call for aggressive re-regulation. Joe Stiglitz should have been Treasury Secretary. Had that happened, Elizabeth Warren would have gotten an important job, too. We would then have something resembling commerce, instead of the prevailing superfast computerized confusion that prevails on the street today. Disturbingly, members of both political parties seem to think it is important to curry favor with Wall Street. If Obama has a tragic flaw this is it. It comes with the territory of being president, I guess.